Busted! 5 myths of digital transformation

Let’s get digital: Serious opportunities await those who can cut through the bull surrounding everything that can make an organization digital

Busted! 5 myths of digital transformation

“Digital” is the new “cloud.” Once upon a time, these words meant something. Now they mean whatever a speaker wants them to mean -- especially if, internally or externally, they’re trying to sell you something. Not surprising, this level of ambiguity has created a fertile environment for mythical thinking.

Behind all the blather and marketing mayhem, digital this and digital that can provide serious opportunities for companies whose leaders can see through the haziness.

And it creates serious challenges for CIOs -- challenges that clear-eyed CIOs can prepare for and overcome, but that will bulldoze the unwary ones who see it as more of the same old same-old.

With this in mind, here are five common myths you’ve probably encountered when reading about digital transformation, along with the nonmythical issues and opportunities behind them.

Myth No. 1: “Digital” is a noun

Mostly, when you read about “digital” it’s as if the word is a thing. This is more than an annoyance to grammarians. Turning “digital” into a thing drives thinking in the wrong direction.

Look: There are digital strategies, digital business models, enabling digital technologies, digital transformations, and other digital items. These are what are real. They can, for many companies, be important.

But then strategies, business models, enabling technologies, and organizational transformations were real, important things before digital became a fashionable modifier.

So when you hear someone talking about the importance of “digital,” ask the obvious question: What is it, exactly, that has to be digital?

The answer will change the conversation, probably from vague platitudes to something you can sink your digital teeth into.

Myth No. 2: Digital business strategy is driven by the cloud, big data + analytics, mobility, and social media

Often these are called the “four pillars of the third platform” -- or something.

Read about “digital” and you’ll read about a list of technologies along these lines.

Analyst firm IDC came up with the “third platform” as, I’m guessing, a way to elevate the importance of several interesting trends by combining them into something more than they are. It sounds plausible, but isn’t, for a couple of reasons.

Reason No. 1 is that the numbering is all wrong -- it includes mainframes and client/server as the prior first and second platforms, but it ignores the ledger sheet and calculator, and the minor matter of the world wide web, which some folks think had something of an impact.

What IDC calls the third platform is really the fifth, not that anyone cares.

More important: There’s always another technology. Defining a digital business strategy in terms of a fixed list of technologies misses the point -- and misses it badly.

What is digital business strategy? It’s business strategy that’s driven by new capabilities. This is what new technologies always provide. But somewhere along the route, IT lost its way, pushed by folks who figured a company’s IT plans should be driven by business needs, instead of recognizing that the company’s business strategy should be driven by new capabilities made possible by new technology.

If your company exploits these capabilities first, they’re amazing opportunities. If it doesn’t and your competitors get there first, they’re significant threats.

Thus, ignore the specifics of the so-called third platform and instead focus on what matters -- what your company can do tomorrow that it couldn’t do yesterday.

Myth No. 3: Digital transformation is about using technology to increase efficiency

Increasing efficiency is an old, tired mental habit that’s very hard to break. If you think digital transformation is about improving efficiency, it’s because we’ve all heard the business pundit class lecture us about efficiency and productivity as the Only Ways to Win so often that our brains have collectively turned into butter.

But it’s one of those canards that’s wrong even when it’s right.

First, see Myth No. 2. Digital strategy is all about competitive advantage, and competitive advantage is much more about the top line than the bottom line -- it’s about improving profits by increasing revenue, not by cutting cost.

Not that cutting costs is a bad thing. Quite the opposite -- it’s a fine thing to do, so long as the value customers see isn’t reduced in the pursuit of efficiency.

But that isn’t what happens. Most companies, when they do increase their efficiency, let the gains “fall to the bottom line.” That is, they charge the same amounts, often for poorer service than they used to provide, and pocket the difference.

What most companies should do is quite different: They should use any efficiency increases technology makes possible to reduce the price they charge for their products and services.

In case this hasn’t come to your attention before now, charging less for the same goods and services is a great way to sell more of them. It isn’t a digital strategy, but that doesn’t make it a bad strategy, let alone a strategy that’s incompatible with digital thinking.

Myth No. 4: Digital companies need a Chief Digital Officer (CDO)

It doesn’t matter what the subject is -- if it’s supposed to be important, someone in the business needs a three-letter title, the first of which is “Chief” and the rest of which is the subject in question.

Which is why, when the world wide web first happened, so did Chief Technology Officers (CTOs). Some were simply retitled CIOs. Others were charged with setting up their company’s e-commerce strategy and implementation, independent of the existing IT organization because IT didn’t know how to cope with the internet.

The rest were paid to think great thoughts and to complain bitterly that IT couldn’t turn their brilliant insights into brilliant realities.

CDOs are like that, too -- some are retitled CIOs, others are supposed to run the company’s newfangled “digital-ness,” and the remainder think deep thoughts and gripe bitter gripes.

The resemblance is uncanny -- more a rewind and replay than anything new and different.

To be fair, in the early days of the web it often made sense for established businesses to incubate a company’s web business as an independent entity. The problem with incubation is the danger of success. Once this happened, integration replaced web entrepreneurship: IT had to integrate web application development; marketing had to integrate web content management; and the executive row had to integrate e-commerce into the company’s overall business strategy and operating model.

Digital transformation looks exactly like this. Digital startups, like the web startups that prefigured them, don’t need an incubation period and don’t have an integration problem. For established businesses there’s only one difference between the advent of the web and the advent of digital thinking, but it’s a big one: We have our experience with the web to draw on.

That means CDOs are mostly for established businesses that haven’t learned from that experience.

Myth No. 5: Digital transformation is about “enabling new business models”

This is less a myth than a “what?” “Business model” is, in its own way, as ambiguous as “digital.” Its best use is probably as a description of the levers and buttons a company can pull and push to turn its actions into profits.

Thus far in the history of digital technologies there have been no more than a handful of business models that are truly new.

Progressive Insurance is, perhaps, the best example. Its Snapshot program shows how a company can take advantage of digital technologies to completely reconceptualize its business.

Nearly all insurance companies are built on actuarial science. “Actuarial” is coincidentally another adjective that’s been turned into a noun, so there’s some justice (and a nice irony) that digital technologies have stood it on its head.

With Snapshot, Progressive gives car owners a driving monitor device that plugs into the car’s diagnostic port. Then, instead of calculating your risk based on who you demographically resemble, Progressive calculates risk by directly observing how you drive in real time.

Want another example? Me too. Most so-called digital businesses are either media companies or brokers. That is, they either share or distribute sponsored content with advertising revenue paying for the free service; or they connect buyers and sellers in exchange for a brokerage fee. These two models describe Google, Facebook, Airbnb, Uber, and almost every other digital darling that economists gush about these days.

The bigger reality

Digitality is surrounded by mythical thinking. This doesn’t mean digital technologies, strategies, and so on don’t matter. Quite the opposite -- the digitization of business is a truly big deal.

What makes it a big deal is as far from mythical as you can get. It’s that, far more than their internally focused industrial-age predecessors, companies that pursue digital strategies or decide to apply selected digital techniques have two highly desirable characteristics.

First, they’re far more focused on increasing revenue than on cutting costs. That means they care more about growth than margin -- and that makes them more fun in nearly every respect.

Second, they have a far more intense focus on engaging with their customers and on making every interaction that customers have with them as enjoyable -- or, if enjoyment isn’t in the cards, as painless -- as possible.

That isn’t simply a big deal. It’s a good deal.

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